Fitch Ratings: North American property & casualty insurers see steady results
Fitch also maintains a stable rating outlook for the commercial, personal and reinsurance sectors.
Operating performance remained consistent with prior-year results for a group of 47 property & casualty (P&C) insurers and reinsurers in the first half of 2019 as a modest weakening in calendar-year underwriting margin was offset by higher investment income, according to a new report by Fitch Ratings.
The sectors outlook for the U.S. P&C sector as well as for the global reinsurance remains stable, reflecting an improvement in market fundamentals with generally favorable pricing trends in most lines and along with several other factors across the sectors. Fitch also maintains a stable rating outlook for the commercial, personal and reinsurance sectors.
Recent reinsurer earnings call commentary frequently highlights benefits from improved pricing in numerous segments. However, underlying loss ratios in aggregate were virtually unchanged period to period. Changes in the group’s combined ratio were more greatly influenced by reductions in favorable loss reserve development, offset by lower expense ratios and catastrophe-related losses.
First half analysis
The last two years were affected by large fourth-quarter catastrophe losses from hurricanes and California wildfires. Catastrophe losses in the first half of 2019 were generally contained within primary insurers’ retentions, with limited losses contributing to reinsurer results. Fitch expects that Hurricane Dorian, the first major hurricane of 2019, will have a meaningful impact on results for the second half of 2019.
Operating earnings for the group expanded by 4% for the period versus the first half of 2018. Operating return on average equity (ROAE) was unchanged at 8.3% in the first half of 2019. Twenty-three of the 47 companies reviewed reported an operating ROAE above 10% for the period.
Separately, growth in investment earnings, particularly unrealized gains on equities and fixed income holdings strongly contributed to an 11% increase in the group’s shareholders’ equity to $748 billion at mid-year 2019 from $674 billion for the year ending 2018, helped also by strong net earnings. More volatile equity market performance and potential for greater second-half share repurchase activity may likely reduce the pace of book value gains over the remainder of the year.
“Improved pricing in many product lines is likely to support performance through the second half of the year,” Christopher A. Grimes, director, insurance at Fitch Ratings, said in a statement. “Overall improvement in full-year results will again hinge on second-half catastrophe experience.”
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